The characteristic swings usually displayed by Bitcoin price is what has earned it the reputation of a very volatile asset. While a lot of people assume that high volatility of Bitcoin price makes it risky for investment, others see the price swings as opportunities to make money.

Several factors have been responsible for either the rise or fall of Bitcoin price. Over the years, some of these factors have occurred repeatedly and in regular patterns. Some of these repeated occurrences are related to particular times and seasons. A typical example of this is the usual drop in Bitcoin price ahead of the Chinese New Year.

Chinese miners to initiate a sell-off

Thoughts exist that during this period, Bitcoin miners in China usually embark on a sell-off exercise of the Bitcoins that they might have earned over a period of time, probably in order to cash in, ahead of the week-long holidays. Considering the dominance of Bitcoin miners in China, any uniform action by them will always have a significant impact on the entire industry. Therefore, going by the popular perception of a seasonal sell-off of Bitcoin, the cyclic slump in price during the season under discussion may no longer appear as a surprise.

Bitcoin rallied to an all-time high price in January 2021. The surge in price during this period was attributed to the entry of institutional investors, drawing Bitcoin closer to the mainstream. As expected, after a significant bull-run, there have been some significant pull backs and bounces off established support levels. As at the time of writing, Bitcoin price has remained within the $30,000 to $40,000 price range, leaving traders and investors in anticipation of what direction to expect a breakout.

Bitcoin to sustain a natural behaviour

Incidentally, the recent bull-run and retracement has come at a season that has repeatedly had an effect in the Bitcoin price, the Chinese New Year, as mentioned above. While some analysts believe and expect that Bitcoin price will follow the trend of previous years, Jake Wujastyk, Chief Market Analyst at TrendSpider sees things differently. According to him, the idea of Bitcoin price slumping as a result of the Chinese New Year celebration is simply “a fabricated attribution”. Jakes notes that it is only natural for Bitcoin price to retrace after a huge run-up. 

He says;

I don’t think we can attribute the volatility of the market to the Chinese New Year or anything of that nature. It’s natural to be attracted to some fabricated attribution, but in this case, it is simply normal behavior after a huge run-up.

Jakes tells 8BTC that some reasons for the rise and drop in Bitcoin price can actually be linked to the Federal Reserve and other central banks around the world continuing to print money as well as keeping interest rates low. He explains that this development creates a move up in price as investors look for other places to get a return on their money since fixed-income vehicles are not paying any type of return due to the low rate environment. The moves down in price come from crypto miners dumping their inventory on the market, as well as profit-taking from investors that got in at much lower prices. 

He further explains the behaviour of Bitcoin price using the chart shown below:

This chart shows the daily and weekly perspective for Bitcoin

Interpreting the Bitcoin charts

Using the charts, Jakes explains that the weekly perspective shows a recent breakout from previous all-time highs from back in 2017. He notes that since there is no other price point from the past to look at as potential levels above, Fibonacci extensions are used as price discovery continues. Price discovery essentially means the market has not experienced current price levels in the past, which is part of the “discovery” aspect to see where sellers step in and supply increases, causing prices to correct.

The daily chart shows a recent breakout of the downward sloping resistance line. There seems to be conviction at the top of the range by buyers within this breakout shown by the daily Raindrop chart (a volume-weighted candle that looks at where conviction by buyers is), but it would have also been a liquidation of short positions, causing a temporary spike in price as they are forced to buy back their Bitcoin to close out the position.

The focus should be on institutional and high-profile corporate money

Michael Vogel, the CEO & Founder of GoCoinstream.com explains that the idea of Chinese Bitcoin miners embarking on a sell-off simply comes from the fact that these miners are in general keen to engage in at least some profit taking. Although he agrees that there has been a moderate trend in years past related to dips heading into Chinese New Year, the profit taking exercise this time around could as well be simply as a result of some natural behavior.

“Miners have endured bear markets in the past and it can be challenging to remain profitable, depending on the size and cost factors of the operation, says Vogel. “Mining incurs electricity and hardware costs, and ultimately their bills need to be paid somehow.”  According to him, the evidence shown in the “Bitcoin miners’ position index” confirms that there has been a wave of miner selloffs in recent weeks.

Vogel explains that it is also important to note that Bitcoin mining isn’t a particularly a “people heavy” operation in the same way manufacturing facilities and factories are in China (most of which fully close during the Chinese New Year holiday period), and will remain mining 24/7. The question, according to him is really whether the sell-off has already occurred or if it will continue.

The more important trend to follow is the flow of institutional and high-profile corporate money in Bitcoin, which has been one of the instigators of this bull run. He notes.

Tying it all up

Whether by the actions of Chinese Bitcoin miners, the interpretation of price behaviour using chart analysis, or by following institutional money, there is a general agreement that we are into interesting times in the Bitcoin market. The current volatility in the market provides an opportunity to make significant profit for those who can predict correctly the next direction that price will follow. At the same time, not being able to analyze correctly may lead to wrong decision making and consequent loss of capital for investors in the marketplace.

Following the suggestion of the seasonal sell-off by Chinese miners, Bitcoin price would be expected to experience a pull-back over the next few weeks, considering that the Chinese New Year is on February 12 2021. However, from Jake’s technical analysis, there appears to be a breakout towards the upside for Bitcoin price. Perhaps, a combination of both analogies may imply a temporary retracement ahead of the continuation of the bull-run.
NOTE: This article is strictly for information purposes and not trading advice. Investors in cryptocurrencies are advised to carry out independent analyses and also consider their personal levels of risk exposure before committing their capital.